Why You Should Plan To Sell Your Business Now

No matter when you actually expect to let go of your business, you need to be prepared for the move.

Recently, I worked with a business owner who received an offer from someone to buy his business. Before coming to me, he did not know the value of his business or if the offer was a good one.

Business owners need to create plans for selling their businesses and transferring ownership. Doing so cannot only prepare them for the inevitable but also allows them to take advantage of the ever-changing tax laws and regulations to ensure maximum after-tax proceeds for themselves and their families.

Our recent election is a perfect example of why being prepared and aware of tax laws is critical. Prior to the election, estate tax minimization was a key driver to structuring a transaction. Now, many believe the estate and gift tax will be repealed and income taxes will be reduced in the short-term. As a result, many people are deferring transactions to 2017 or 2018 and focusing on minimizing income taxes instead of estate taxes.

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Having a plan doesn't mean you are going to take any action immediately, it just means you and your business have a path going forward. Here is how a plan can benefit you:

  • In the event you get sick or are suddenly unable to continue operating your business, you can avoid the stress of not knowing what will happen to your business.
  • You are aware of your future cash needs, if you choose to sell.
  • You understand the value of your business.
  • You ensure you receive the maximum personal tax benefits available.
  • You can take advantage of current tax laws and potential changes, such as repeal of the estate tax or the proposed modification of valuation discounts, before they become effective.

Don't Forget About the IRS

Many business owners fail to plan for the future because they assume the business will go on without them or their children or a business partner will just take over. But part of running a successful business is having a smooth succession plan in place and ensuring a proper, tax-efficient transfer of ownership. This will help achieve long-term family goals.

If you are thinking of selling to a third party or just transferring your business to your children, acting sooner rather than later means you can take advantage of valuation discounts and related wealth strategies that may soon disappear. Currently, these discounts can be as high as 35%, which can mean hundreds of thousands of dollars in savings when transferring just a small amount of a business valued at a couple million dollars. On the other hand, if the estate and gift tax laws are repealed as proposed by the President-elect, delaying a transfer could mean avoiding gift taxes that in the future may not exist.

An example of this would be a business-owner selling a portion of the business to his children, which allows for a valuation discount. Let's say a year later the company is sold for a larger value than the previous valuation. On top of the valuation discount, the difference between the ultimate selling price and the discounted value for the portion transferred would pass free of estate and gift taxes. While this may be irrelevant if the transfer tax laws are repealed, this is way to ensure that, no matter what happens, the after-tax proceeds of a sale are maximized.

Determining the Value Of Your Business

Early planning also means you can take measures to maximize the value of your business before you sell. Knowing what your business is worth lets you know if an offer is good or bad, and whether it is worth considering. If someone offered to buy your business, would you know if the price was low, fair or fantastic or if you should rush to get a deal closed?

You may also come to find that your business simply isn't sellable at an after-tax value needed to support your lifestyle - another reason to plan in advance, especially if you have included generating income from the sale of your business as part of your retirement plan.

After the Sale

Knowing what you intend to do after the sale is as important as planning for the sale. Enjoying a steady, invested income may mean peace of mind, so long as you can count on it.

After speaking with a trusted business or financial adviser, you may find that in today's low return environment, it is best to hold onto your business with the proper management in place because the cash flow is a more beneficial long-term annuity.

Who To Talk To

Begin the planning process by speaking with your trusted business or tax adviser who would best understand your business and life goals. If you don't have one, you can ask your tax preparer to refer you to a good business or tax adviser capable of putting together a team which may include: a tax accountant, attorney and, if the company is big enough, an investment banker. Having the plan in place means you and your business are ready for the future, come what may. While on the other hand,the failure to invest the effort and time in strategic tax and life planning can result in devastating consequences.

As the chief wealth officer, Andrew Bass is responsible for all strategic financial and life management services of Telemus. He works with high-net-worth members to ensure their financial life plans are designed to achieve realistic goals in both the short and long term.

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Andrew Bass, CPA, CWM, PFS
Chief Wealth Officer, Telemus

As the chief wealth officer, Andrew Bass is responsible for all strategic financial and life management services of Telemus. He works with high-net-worth members to ensure their financial life plans are designed to achieve realistic goals in both the short and long term.